Price-Fixing Overcharges: Revised 3rd Edition

Abstract

Many jurisdictions fine illegal cartels using penalty guidelines that presume an arbitrary 10% overcharge. This paper surveys more than 700 published economic studies and judicial decisions that contain 2,041 quantitative estimates of overcharges of hard-core cartels.

The primary findings are: (1) the median average long-run overcharge for all types of cartels over all time periods is 23.0%; (2) the mean average is at least 49%; (3) overcharges reached their zenith in 1891-1945 and have trended downward ever since; (4) 6% of the cartel episodes are zero; (5) median overcharges of international-membership cartels are 38% higher than those of domestic cartels; (6) convicted cartels are on average 19% more effective at raising prices as unpunished cartels; (7) bid-rigging conduct displays 25% lower mark-ups than price-fixing cartels; (8) when cartels operate at peak effectiveness, price changes are 60% to 80% higher than the whole episode; and (9) laboratory and natural market data find that the Cartel Monopoly Index (CMI) varies from 11% to 95%. Historical penalty guidelines aimed at optimally deterring cartels are likely to be too low.